Blockchain-based OS for banks surfaces, could shake up retail banking

Traditional bank data centers will disappear if financial institutions adopt private blockchain. That’s looking more likely as a SaaS, blockchain-based banking OS appears.

Some banking software is so old that programmers have had to come out of retirement to fix glitches in the code and integrate it into mobile phone device interfaces. That’s if the banks could find the poor guy, who's probably out fishing somewhere, or if he’s still alive.

Yet banks haven’t wanted to invest in from-scratch, well-documented re-engineering. It’s too expensive—bankers prefer to count money than spend it—and it’s difficult to justify a new back end to owners because code is so invisible. Banking code has thus stagnated and gotten patched when necessary, or possible, despite fraud and cyber theft.

+ Also on Network World: What is blockchain and how does it work? +

A modern, safe operating system designed specifically for banks that promises to end theft, along with resulting reputation damage, and costs a lot less would be a solution stakeholders might go for, though.

Vault OS, a blockchain technology that recently emerged out of stealth, promises to fix all of banking’s tech problems by running scalably in the cloud, thus ending central points of failure; being consequently cheaper; and operating a highly secure, real-time ledger using cryptography à la Bitcoin.

Bitcoin’s system of peer-to-peer transactions occurs directly between users electronically rather than through a bank. Bitcoin transactions are verified by the network and are documented in a cryptographic publicly available ledger known as the blockchain.

Vault OS is using “private blockchain-style technology,” says ThoughtMachine, the U.K.-based developer, in a press release.

The benefits to banks could be significant.

Eliminating the need for traditional bank data centers

Employee-reducing scalability is obtained through use of the cloud rather than data centers, the company claims. That cloud-focus “enables a bank to scale from one customer to tens of millions,” it explains.

Costs are kept down in part because the banks don’t need people to run the data centers. And the fact that the solution is brand-new, means banks don’t need software engineers to “keep legacy systems from failing,” further reducing costs, ThoughtMachine says.

The company claims its blockchain product is future-proof, too, because it uses machine learning to help banks develop new products. They can “roll out new ones in days,” it says.

All of the transactions are recorded in real time, unlike the overnight appearance that it can take for a customer to see transactions appear on ledgers in traditional banking.

This should help with compliance issues, ThoughtMachine says. “Within seconds of, say, a customer swiping a credit card,” the transaction appears on the bank’s balance sheet. So a bank, or indeed a customer, should always know its financial position in real time.

It’s the Bitcoin-technology, blockchain nature of Vault OS that’s revolutionary. That’s primarily because of those transactional improvements over traditional ledgers.

A challenge: The public's perception of Bitcoin

One of the problems that model Bitcoin has had is that, in the public’s eye, it has been unable to separate the transactional system improvements—where the cost of sending money is one or two electrons, rather than an entire building full of people—from the speculative element. That’s where someone gets a Bitcoin, and it goes up or down in value, creating millionaires or the penniless.

If one thinks of blockchain technology for banks, not in Bitcoin terms and its media-hyped wealth creation, but purely in terms of transactions, Vault OS makes a lot of sense.

But it also prompts the question: If all one is doing is cryptographically passing electrons back and forth, what do you need banks for anyway? In the case of Vault OS, has the horse not already bolted?

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Copyright © 2016 IDG Communications, Inc.

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